Wendy’s CEO: 'We’re lapping breakfast sales from a year ago'

The Wendy's Company CEO and President Todd Penegor sits down with Yahoo Finance Live's Brian Sozzi to discuss the chain's strategy to offset inflation costs, moves towards digital apps, and how they're maximizing output through their menu.

Video Transcript

BRIAN SOZZI: Welcome back to Yahoo Finance Live. Shares of Wendy's under a little bit of pressure here after the company's earnings release this morning. Let's bring in Wendy's CEO, Todd Penegor, to talk a little bit more about the quarter and the outlook. Todd, always nice to see you here. I know you just got off your earnings call. I think a lot of folks on the street were looking for a sales bump from breakfast. Did you get it?

TODD PENEGOR: We are seeing sales continue to build on the breakfast day part. You know, our mix exited the quarter at 7 and 1/2%. It is contributing to our same restaurant sales growth. And remember, you know, we're now lapping breakfast sales from a year ago. And when you look at our two-year stack comp of 9.1% in the US, that's a really healthy business in today's environment.

And we know we're constrained. Labor is clearly a challenge for all of us in the market. And hours getting adjusted in the restaurants is an opportunity. So we feel good about the momentum that we have in our business. And I did comment on the earnings call, the start to the fourth quarter with the buck biscuits going on in the breakfast day part, the new introduced French fry, fully renovated and innovated behind. We're off to a really nice start, ahead of the plan and internally with the guidance we just provided.

BRIAN SOZZI: So, fourth quarter off to a good start. That is good to hear, I'm sure, for many folks out there. Do you have plans next year to expand the breakfast menu?

TODD PENEGOR: Yeah, we're at that stage. I mean, when we originally started the breakfast journey, we needed to make it fast. We needed to make it, you know, very efficient to operate with minimal labor and minimal investment to really convince the entire system that we can be successful in the breakfast day part. And we've now proven even during the most challenging at times, we have a very sustainable breakfast proposition.

So you will see us in the next year start to innovate on the food side of the menu first. And then over time, I'm sure you'll see us start to innovate into the beverage arena. Those are opportunities that will take some investment and some investment in labor, some investment in equipment. But we've proven it's a profitable day part. A lot of success and a lot of enthusiasm for the franchise community to drive that business even harder.

BRIAN SOZZI: Ted, I know you're a good sport, so I'm going to ask the producers to put a photo of my trip from Wendy's over the weekend on the screen right now. And I just want to take people through my trip. First, you know, you mentioned labor, Todd. And when I rolled up to my local Wendy's, the line was really out in the highway. I mean, it was late night. That's a good thing. You don't to see an empty restaurant. But I looked inside. I mean, there were only a couple employees. Like, how difficult is it for the franchisees to find labor in this environment right now?

TODD PENEGOR: Yeah, labor is really challenged right now, Brian. And thanks for being patient. Hopefully the food was hot and delicious when you were at the drive-thru--

BRIAN SOZZI: It was hot, and it was good, all 2,000 calories of it.

TODD PENEGOR: --which is great. But no, it's-- we've seen the applicant flow pick up a little bit over the last four or five weeks now. Still not enough to get ourselves staffed where we need to be staffed. But we do know that there's a lot of business to be had with staffing being strong. Late night, we're doing well. If we have staffing better, we can drive even more throughput at that day part. Lunch is an opportunity with many of our dining rooms. We had 15% of our dining rooms closed during the quarter. It puts a lot of pressure on being fast and efficient in the drive-thru.

Soon as we can get those dining rooms open, not only helping with throughput at lunch and dinner, but also helps us on our delivery side of the business and digital side of the businesses. We've got delivery drivers skipping the line, coming in to grabbing the food to get quick deliveries out the door, as well as a lot of consumers taking advantage of mobile order-ahead and grab-and-go. And those are just opportunities that can really drive a lot more growth into the future as we start to get staffing in a little better position and get those dining rooms all open across our system.

BRIAN SOZZI: I'll tell you what I ordered. I ordered a big bacon classic, a double, of course, two spicy chicken sandwiches, a large fry, and a large Diet Coke. True story, ate it all. Now, to me, it felt like my bill was higher than when I went about a month ago. Is that going to be a big problem for fast food next year, just keeping things affordable in a very inflationary environment?

TODD PENEGOR: Yeah, I think, you know, what we need to do is price. There is a lot of inflation. We talked on the call that within the third quarter, we had 3% commodity inflation. We had 9 and 1/2% labor inflation. And we're going to have to take some pricing to offset some of those pressures. We'll be smart. We'll take it where we need to take it.

The good news is the consumer is a little healthier. The consumers got a little more disposable personal income so they can react and respond to some of the increased pricing. But we'll also be smart, too. We'll make sure we get value propositions with great things like four for four and the $5 Biggie bag. We'll continue to trade folks up into our most craveable items and the Made to Crave lineup with some great innovation.

And we'll still have a lot of offers within the app, because we want to get people into the digital arena, which will create some opportunity to have some value on that side. And relatively speaking, you know, when you think about speed, convenience, and ultimately, affordability, and then value for the money with the quality that comes for it, you know, when you sit where Wendy sits, relative to everybody else out there, I think we're in a really good spot. And we've been pretty smart on pricing over the last several years.

BRIAN SOZZI: Why did you change your fries?

TODD PENEGOR: We wanted them to be hotter and crispier. You know, at the end of the day, a consumer wanted an experience that had hotter, crispier, and better salted fries every single time. And our team worked really hard to ensure that we could deliver on that experience, make it easier operationally to manage within the restaurant, to deliver on that promise time and again. And we are so excited about it. We had the hot and-- hot guarantee, hot and fresh.

So, you know, if you're disappointed in your French fries at a Wendy's restaurant, we will happily make them over for you. But man, these things do stay hotter. They do stay crispier a lot longer. And the feedback has been really, really strong with the initial trial that we've had. So I'm glad you enjoyed them, too, Brian.

BRIAN SOZZI: Let the record show I did notice the difference. Lastly, talking about my trip to Wendy's over the weekend, why the big bet on cheese? I mean, there's cheese plastered all over this menu, a little something different than what I normally have seen when I went to Wendy's.

TODD PENEGOR: Yeah it's really about innovation and bringing news. When you think about the big bacon cheddar cheeseburger, it's a major crave item that's really driving our mix much higher on Made to Crave. It's trading folks not only from value to premium, but to ultra premium, some of our best tasting high quality craveable food items. We'll continue to do that.

And as you know, we've always been a big bacon player. You know, we've got bacon options on most of our whole lineup. And, you know, when you think about fresh, oven-baked, smoked applewood bacon, you know, it is all about the quality messaging that we have. And something that's just a little bit different than the competition is we can manage customization better than most.

BRIAN SOZZI: Todd, I wish you could see our Slack channel right now because I think you made a whole bunch of people very, very hungry. Wendy's CEO, Todd Penegor, always good to see you. We'll talk to you soon.